GULF SPILL MAY BE WORSE THAN STORMS, LANDOWNERS SAY - UPDATE 2 (BLOOMBERG)
May 5, 2010
By John Gittelsohn and Nadja Brandt
(Bloomberg) -- BP Plc’s burgeoning oil spill in the Gulf of Mexico may hurt property owners more than any storm as sludge threatens to wreak long-term damage on the region’s most valuable asset: its environment.
“I've been through Hurricane Camille, Hurricane Frederick and Hurricane Katrina,” said Greg Miller, owner of Fort Morgan Realty and Development Inc. in Gulf Shores, Alabama. “They all pale in comparison to this.”
Florida Governor Charlie Crist yesterday extended a state of emergency to 13 coastal counties as far south as Sarasota. The oil, leaking at an estimated pace of 5,000 barrels a day, was flowing east toward the Alabama and Florida coasts at the time, according to the National Oceanic and Atmospheric Administration. Winds blowing today were from the south at 8 to 9 knots in two- to three-foot seas, according to BP’s website for the oil spill.
Any oil that comes ashore will hit an area where real estate values depend on access to white sandy beaches.
The Oceanic and Atmospheric Administration on May 2 restricted fishing for at least 10 days from the mouth of the Mississippi River to Pensacola Bay. President Barack Obama said the spill may become “an unprecedented environmental disaster” affecting the economy and individual livelihoods.
Miller owns a 20 percent share of 260 acres (105 hectares) of buildable wetlands and manages 100 individual properties now threatened. An investor offered $84 million for the 260 acres in 2007, a deal scuttled by the national real estate decline, Miller said. Until now, the area kept attracting small investors and vacationers, he said.
This week, visitors are pulling out.
“People are canceling left and right,” he said. “The phone is ringing off the hook.”
The oil spill is the result of an April 20 explosion on the Deepwater Horizon drilling rig in the gulf. In a statement on its website yesterday, BP said it would pay “all necessary and appropriate clean-up costs.”
That may include claims for ”property damage caused by the oil, personal injury caused by the spill, commercial losses including loss of earnings/profit and other losses as contemplated by applicable laws and regulations,” BP said.
“We’ll determine the legitimacy of claims on a case-by-case basis,” Curtis Thomas, a BP spokesman, said in response to a question about property values. He spoke in a telephone interview from Robert, Louisiana.
Miller last week joined a lawsuit seeking class-action status for property owners affected by the leak. They've already suffered rental cancellations although it’s too soon to estimate long-term damage, said their attorney, Robert Cunningham of Cunningham Bounds LLC in Mobile, Alabama.
“There are questions of diminution of value, clean-up costs and all kinds of issues for the population and condo owners,” said Cunningham, whose law firm filed suits on behalf of fishermen and property owners in federal courts in Florida and Alabama. “The closest thing is the Exxon Valdez incident. There’s a lot more property threatened here.”
Lawsuits are one avenue real estate owners may use to recover losses tied to the oil spill, said Robert Hartwig, president and economist for the Insurance Information Institute, an industry research center in New York.
Standard commercial or home insurance policies usually cover only property damage, not claims for lost value, he said.
The St. Joe Co., a real estate operating company with 578,000 acres in the Florida panhandle, said yesterday it’s preparing a cleanup plan. The company’s shares sank 11 percent on April 30, the day Crist first declared a state of emergency in Florida. They've fallen 16 percent since April 29.
St. Joe Outlook
“As of this time, we have not experienced any direct impact from the oil spill but we are in a position to execute an expedited cleanup of our beaches in the event it is necessary,” St. Joe’s President and Chief Executive Officer Britt Greene said in the statement.
The developer’s website lists eight communities along the Gulf Coast including WaterColor, a 499-acre planned development with a 60-room boutique hotel.
Bruce Berkowitz, founder of Miami-based Fairholme Capital Management LLC and St. Joe’s biggest shareholder, said he thinks the company “has been getting killed” by the oil spill.
“I’m just guessing here, but this oil spill is going to be the full-employment act of northwest Florida,” Berkowitz said today during an investor conference in Pasadena, California. “Not a lot of hotel rooms left either, from what I understand.”
St. Joe developed the Northwest Florida Beaches International Airport in Panama City Beach, Florida, which is set to open May 23. It’s the first U.S.-based international airport built since Denver International in 1995. Berkowitz said it may soon be a hub for clean-up workers.
Southwest Airlines Co. is scheduled to start eight daily flights and hasn’t altered those plans, said Brandy King, a spokeswoman for Dallas-based Southwest.
“We don’t anticipate it having an impact on our starting up there,” she said in a telephone interview yesterday. “As of right now, plenty of folks are ready to take flight to Panama City. Our bookings are good.”
New Orleans Hotels
Before the oil spill, hotel occupancy rates in the New Orleans-Slidell, Louisiana, area were rising, said Jan Freitag, vice president of Hendersonville, Tennessee-based Smith Travel Research Inc. Three days after the Deepwater Horizon explosion, occupancy was 67 percent of capacity, up from 53 percent on the same day a year earlier, he said.
“The longer term impact is something we are just tracking now and will throughout the summer,” Freitag said. “People may decide to stay away. That is a definite possibility.”
The spill has so far spared the Mississippi coast, where riverboat casinos draw tourists from throughout the southeast U.S.
“The oil is not an issue for us at this point in time,” said Janice Jones, spokeswoman for the Mississippi Gulf Coast Convention and Visitors Bureau in Biloxi, Mississippi. “We have had no cancellations. We have had just a few phone calls from people checking on the status of things.”
Larger hotels in the area include the MGM Mirage’s Beau Rivage Resort & Casino Biloxi and Harrah’s Entertainment Inc.’s Grand Biloxi Casino Hotel & Spa. Marriott International Inc. opened the Courtyard Biloxi North/D’Iberville this week in addition to the Residence Inns it runs. Holiday Inns dot the coast as well, said Linda Hornsby, executive director of the Mississippi Hotel and Lodging Association.
“We are of course concerned -- as everyone is -- about the potential impact of the Gulf of Mexico oil disaster,” said Thomas Marder, Marriott’s vice president for Global Corporate Relations. “But specifically in terms of our business, it’s too early to tell if there would be an impact.”
Hilton Worldwide spokesman Aaron Radelet declined to comment. Spokesmen for Starwood Hotels & Resorts Inc. didn’t return messages seeking comment yesterday.
David Head Jr., whose company Head Companies developed four Gulf Coast golf-course communities in Florida and Alabama, said he’s concerned about their 1,400 home sites and condominiums.
“What we sell and market is a lifestyle,” Head said. “As a developer, we're very concerned about long standing effects.”
--Editors: Sharon L. Lynch, Rob Urban